Arbeitspapier
Ambiguity, nominal bond yields and real bond yields
Equilibrium bond-pricing models rely on inflation being bad news for future growth to generate upward-sloping nominal yield curves. We develop a model that can generate upward-sloping nominal and real yield curves by instead using ambiguity about inflation and growth. Ambiguity can help resolve the puzzling fact that upward-sloping yield curves have persisted despite positive inflation shocks changing from negative to positive news about growth in the last twenty years. Investors make decisions using worst-case beliefs, under which the expectations hypothesis roughly holds. However, inflation and growth evolve over time under the true distribution, and this difference makes excess returns on long-term bonds predictable. The model is also consistent with the recent empirical findings on the term structure of equity returns.
- Language
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Englisch
- Bibliographic citation
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Series: Bank of Canada Staff Working Paper ; No. 2018-24
- Classification
-
Wirtschaft
Financial Economics: General
Asset Pricing; Trading Volume; Bond Interest Rates
Interest Rates: Determination, Term Structure, and Effects
- Subject
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Asset pricing
Financial markets
Interest rates
- Event
-
Geistige Schöpfung
- (who)
-
Zhao, Guihai
- Event
-
Veröffentlichung
- (who)
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Bank of Canada
- (where)
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Ottawa
- (when)
-
2018
- DOI
-
doi:10.34989/swp-2018-24
- Handle
- Last update
-
10.03.2025, 11:41 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Zhao, Guihai
- Bank of Canada
Time of origin
- 2018
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